Canada Pipeline System “Dysfunctional”: Industry Executive

Canada’s oil pipeline system is not just insufficient to transport the growing amounts of crude companies are producing. It is also features a “dysfunctional pipeline nomination process,” according to Canadian Natural Resources, one of the top players in the field.

In a press release presenting the company’s 2019 budget, Canadian Natural Resources said this dysfunctionality has prompted a revision of its planned capex for next year down by US$750 million (C$1 billion) to US$2.76 billion (C$3.7 billion).

CBC reports the complaint follows comments from Canadian Natural Resources vice chairman Steve Laut made in November that the current procedure for booking pipeline capacity favored certain companies over others, allowing them to book capacity they are not going to use in times when there is more oil than pipeline space.

The company’s concern was echoed by Alberta Premier Rachel Notley last month. Albertan oil producers need to become warier of overbooking already filled-to-capacity oil pipelines creating what’s commonly called “air barrels”, as these contribute to the huge discount Canadian crude is trading at to WTI and other benchmarks.

“The efficient use of pipelines as they contribute to our overall takeaway capacity has been one topic of discussion,” the Premier told media. Soon after, Notley announced an obligatory production cut for producers in Alberta in an attempt to stymie a worrying increase in inventories as the difficulties surrounding the process of getting the crude to markets plunged Canadian crude to a discount of over US$40 per barrel to West Texas Intermediate.

Notley announced last Sunday that the government of the province will enact an 8.7-percent crude oil production cut, in place until the glut in storage clears. Afterwards, the cut will be reduced to 95,000 bpd, to remain in place until the end of next year. Prices reacted immediately, recovering some of the losses suffered in the last few months.